Bloomberg News

Cape to Cairo Bloc to Forge Market of 590 Million Consumers

June 10, 2011

(Updates with shift of trade to Asia in 10th paragraph.)

June 10 (Bloomberg) -- African leaders meet this weekend to push forward proposals to bring more than half a billion consumers from Cape Town to Cairo into a single free trade zone.

Heads of state from the Southern African Development Community, the Common Market for Eastern and Southern Africa, and the East African Community trade blocs will meet on June 12 in Johannesburg, South Africa for only their second meeting after an initial summit in October 2008.

South Africa, the continent’s largest economy, is driving regional integration as it seeks to create a larger market for companies such as Shoprite Holdings Ltd., Africa’s biggest retailer. Africa’s economy has grown an average of 5.7 percent over the past decade according to the International Monetary Fund, fueling the expansion of a new middle class.

Strong growth and “intensifying global competition for Africa’s resources and markets” make it “imperative that South Africa accelerates efforts to promote regional integration to ensure that we trade on terms at least as favorable as other competitors,” Trade Minister Rob Davies said.

Africa now has more families earning in excess of $20,000 a year than India, according to a McKinsey & Co. Inc study published in June last year.

While there are at least eight overlapping African economic blocs, poorly maintained transport routes and lengthy border- crossings have undermined internal trade.

Grand Area

The so-called Grand Free Trade Area, which encompasses 26 countries and 590 million people, would initially be limited to the trade of goods, Davies said in a June 8 opinion piece published in Johannesburg’s Business Report newspaper.

The growth of Africa’s consumer market saw Wal-Mart Stores Inc. bid last year for a controlling stake in Massmart Holdings Ltd., the continent’s third-largest retailer. Eliminating trade tariffs may aid U.S. companies such as Wal-Mart, which are looking for opportunities on the continent, said Jose Fernandez, U.S. assistant secretary of state for economic, energy and business affairs.

“It’s beneficial, it just opens up the market, it increases the customer base, it makes it cheaper to transport products from one place to another,” Fernandez said in a June 6 interview in Johannesburg. “It’s something we believe will help companies and customers will have access to cheaper products.”

Shift to Asia

Africa’s overseas trade has shifted from traditional partners such as the European Union and U.S. to emerging economies including South Korea, India and China, which is now the continent’s largest trading partner, according to a June 6 report by the African Development Bank, the Organization for Economic Cooperation and Development, the United Nations Development Programme and the UN Economic Commission for Africa.

Trade among African countries has been stymied by political instability, a lack of diversification in their economies and poor implementation of trade agreements, the report said.

The uneven pace of regional integration in Africa in which customs unions aren’t fully implemented, indicate that it will take years for the planned trade zone to take effect, said Paul Kruger, a trade analyst at the Trade Law Centre for Southern Africa based in Stellenbosch near Cape Town.

“We are going to run into a few problems,” Kruger said in an interview. “If you want to do this thing on a grandiose scale, how are you going to do that if you’ve never done it on the smaller scale.”

--Editors: Philip Sanders, Karl Maier, Antony Sguazzin.

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus